The Payment of Gratuity Act, 1972 entitles employees to a lump sum payment upon leaving a job after 5 or more years of continuous service.
Who Is Eligible?
- Employees in establishments with 10 or more employees
- Must have completed 5 years of continuous service
- Payable on retirement, resignation, death, or disablement
Exception: In case of death or disablement, the 5-year requirement is waived.
How Is Gratuity Calculated?
Formula: (Last drawn salary × 15/26) × Number of years of service
- “Salary” = Basic + Dearness Allowance
- 15 days’ salary for every completed year of service
- 26 = working days in a month
Example: If your last salary was ₹50,000/month and you worked for 10 years: Gratuity = (50,000 × 15/26) × 10 = ₹2,88,461
Maximum Limit
The maximum gratuity payable is ₹20 lakh (tax-free up to this limit for private sector employees).
Forfeiture
Gratuity can be forfeited (partially or fully) if the employee is dismissed for:
- Wilful omission or negligence causing damage to property
- Riotous or disorderly conduct
- Moral turpitude offences